SES Global Offers Tips For Procurement Partners

By | June 7, 2004 | Feature

By Paul Dykewicz, Senior Analyst/Senior Editor

The successful launch of SES Americom’s Lockheed Martin [LMT]-built AMC-11 satellite aboard an Atlas IIAS launch vehicle May 19 is the latest example of Luxembourg-based SES Global [SES] benefiting from its careful process of picking launch vehicle services and satellite manufacturing partners while still negotiating favorable terms.

As the world’s largest satellite operating company, SES Global wholly owns Princeton, N.J.-based SES Americom and Luxembourg’s SES Astra. It also is an investor in regional satellite operators, including AsiaSat (34.1 percent), Nordic Satellite AB (NSAB) (75 percent), Nahuelsat (28.75 percent), Star One (19.99 percent), Orbcomm (9 percent) and WORLDSAT (100-percent owned by SES Americom). That size and global reach is unmatched by any of its industry rivals, and it gives SES Global unequalled buying power that the company has been using to full advantage. SES Global and its business units have been coveted and frequent buyers of satellites and launch services during the last couple of years as they have pursued new market opportunities.

SES has been an early and avowed leader in broadband and high-definition television (HDTV) services. For example, the AMC-11 combines with the AMC-10 satellite launched Feb. 5 to provide the industry’s only two-satellite HDTV neighborhood that will reach more than 80 million cable-TV households in North America. The company’s willingness to invest in new satellites during an economic slowdown, when excess in-orbit capacity existed in certain regions of the world, also gave it access to a spectrum of launch service providers and satellite manufacturers eager to cut deals to gain new orders.

Whereas in-orbit satellite problems and, to a lesser extent, launch mishaps have hamstrung other satellite operators, SES Global largely has been spared from such catastrophes. For example, it’s enjoyed problem-free launch and deployment of its last three missions: AMC-9, AMC-10 and AMC-11. The last setback the company incurred took place in November 2002, when the ASTRA 1K satellite built and launched for SES Astra was lost due to a malfunction with its Russian-made Proton rocket.

Prudent Practices

Darlene Freeman, SES Global’s vice president of sourcing, is responsible for co-leading and coordinating the procurement activities for satellites, launch vehicles and other major projects within the SES Global family. Her mission is to work with various SES entities jointly to maximize overall value and synergies.

For example, SES Global announced April 19 that it signed a new contract to launch three satellites onboard American Atlas and Russian Proton boosters provided by International Launch Services (ILS). Under terms of the contract, AMC-16 currently is slated for launch onboard Proton/Breeze M from the Baikonur Cosmodrome in first-quarter 2005. The launch manifest also currently calls for AMC-14 to lift off on Atlas 5 from Cape Canaveral, Fla., in first-quarter 2006, while ASTRA 1L would be placed into orbit by a Proton / Breeze M in fourth-quarter 2006.

“This important contract is the first joint transaction by SES Americom and SES Astra,” Bausch said at the time of the announcement. “It clearly demonstrates the capital expenditure synergies that can be achieved through efficient global sourcing under the umbrella of SES Global.”

Although procurements of satellites and launch services are executed regionally, SES regularly consolidates commercial, non-technical requirements for spacecraft and launch vehicles among its business units to identify opportunities to gain incremental value by entering the market cooperatively, Freeman said. An “excellent example” is the recent procurement of three ILS launch vehicles by SES Americom and SES Astra, she added.

SES Global also has used its track record of generally successful missions to gain a break on insurance premiums, compared to the going market rates.

“Although the space insurance markets have been very dynamic in recent years, SES works very closely with its underwriters in achieving the most favorable terms available in the market that reflect the quality and reliability of its fleet,” said Rob Kisilywicz, SES Americom’s CFO.

When starting a procurement process, each SES operating unit would give commercial and technical specifications to satellite manufacturers and launch service providers that are tied closely to customer and market needs. The process also involves stating specific, measurable objectives for on-time operation, on-specification performance for technical requirements, and on-budget delivery of the program to meet an operator’s price and cash flow objectives.

For a satellite manufacturer to deliver well-built satellites that meet schedule, technical specification and budget requirements, SES operating units seek to design the spacecraft to meet the needs of their customers — before beginning procurement discussions. The design process involves the participation of sales, marketing, and technical team members to define and agree upon satellite requirements.

Satellite manufacturers should be prepared to:

  • Demonstrate proven performance;
  • Maintain ongoing participation with a satellite operator’s technical staff based at the manufacturer’s factory; and
  • Commit to robust commercial terms and conditions that support the on-time, on-specification, on-budget delivery of the spacecraft. For example, a manufacturer could agree to pay financial penalties if the satellite it builds is overweight, is delivered late or fails to meet specifications.

Guiding Principle

The current slowdown in industry-wide demand for launch vehicle and satellite orders has helped operators in pricing, cash flow and receiving unique terms and conditions.

“Both manufacturers and launch service providers are focused on addressing current over capacity while proactively re-aligning their products and services to position themselves strategically in anticipation of increased orders,” Freeman said. Recent examples are Boeing Satellite Systems’ focus on the 702 model spacecraft, and the Arianespace/Sea Launch alliance for providing mutual back-up services to help ensure customers can launch their satellites on time.

SES has found the time frame for a launch service provider to conduct a mission after signing a contract is generally 18 months, depending on the launch vehicle and contract terms. In cases when on-time availability of a satellite is critical, an operator can negotiate for a backup launch vehicle that can be made available in about six months.

Satellite manufacturers also have been trying to reduce their production cycles to speed delivery of satellites to their customers. If a satellite can be delivered when a marketplace opportunity exists, an operator’s potential profitability can be enhanced.

However, concerns exist within the industry about how quickly a manufacturer should attempt to build a satellite to ensure it still performs reliably in-orbit.

“SES continues to work with the satellite manufacturers to identify ways to reduce manufacturing cycle times without compromising quality of the spacecraft,” Freeman said. “Although in general programs that do not have material design changes can run between 24 and 27 months, achieving a 18-month cycle time is of interest – particularly to SES Americom — as it would allow faster response time to the market and customer requirements.”

Aside from the expedited delivery of reliable spacecraft to seize marketplace opportunities, satellite operators also can benefit from the availability of a wide variety of launch vehicles to meet specific needs, as well as sufficient capacity among satellite manufacturers to handle new orders.

“It is important to SES to have a diverse portfolio of financially healthy and capable vendor-partners to work with to provide compelling and often unique value propositions to the market,” Freeman said. “Some providers may consider consolidation or other re-alignments to achieve this or to strategically offer a more compelling product/service.”

For now, satellite operators are in a position to ask for more favorable terms and conditions with launch service providers and satellite manufacturers looking to stay busy to cover their fixed costs. As demand for launch services and new satellites rises among the world’s operators, the negotiations could become more balanced. Until then, such operators as SES Global and its business units that can place their next round of orders before demand picks up appreciably should be able to find their best deals.

Paul Dykewicz is senior editor and senior analyst of Satellite News. He can be reached at 301/354-1769 or at pdykewicz@pbimedia.com.

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